Stock Trading 101: A Beginner's Guide

Learn the Ropes If You're a Newbie to Online Trading

It's crucial to educate yourself before you wade into any type of investment or investment strategy. This beginner's guide to online stock trading will give you a starting point and walk you through several processes: choosing a discount broker, the 12 types of stock trades you can make, how to select individual stocks, uncovering hidden fees, expenses, and commissions, and much more.

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Twelve types of trades are available when you begin online stock trading. They include the market trade, limit trade, stop loss, day orders, good-till-canceled trades, trailing stops, and bracket trades. Walk through this step-by-step guide to stock trading and find a definition and example for each of these terms.

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The biggest enemy of successful stock trading is something Warren Buffett calls frictional expenses. They represent money you're shredding without any benefit to you. What are frictional expenses? Commissions and fees are a good example. Learn how to avoid them.

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If your stock trading brokerage account is for speculation and you want to roll the dice, you can actually borrow money from your brokerage firm. This is known as trading on margin. You can leverage your positions up to 3-1 in certain situations. This approach to trading stocks has some big potential pitfalls you'll have to guard against, however.

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When you've been approved for margin stock trading, you're also eligible to short stock. Almost every successful stock trader has shorted stock at one time or another. When you short stock, you make money when the company's shares fall—or, even better yet, when they crash. The problem is that you can expose yourself to unlimited liability when you do this.

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If you're interested in stock trading and you want to buy or sell shares of foreign companies, it might be possible to do that right here at home if the corporation you're considering has American Depository Receipts (ADRs). It's fairly simple to find out if a business has them and how they're different from regular stock.

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Now that you've learned about market markers and the role they play, it's time to go one step further and learn about the investment bank. You might trade directly with an investment bank if you're extremely wealthy. Otherwise, your stockbroker trades on your behalf through an investment bank, whether you realize it or not.

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If you trade stock regularly, you might find yourself accidentally violating the dreaded wash sale rule. This can cost you huge tax penalties. With a little planning, you can avoid this fate and still enjoy trading stocks aggressively with a little planning.

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You have to know the tax rules for each of your positions if you're going to be an active stock trader. The shorter you hold a stock, the more you'll pay the IRS in taxes. This was designed to encourage long-term investment over short-term speculating.

Now that you've learned the basics of stock trading, you can get into the specific ways you can make money. Our trading stock strategy guide is a collection of articles explaining real-life techniques you can use to begin trading stocks. You'll learn how investors like Warren Buffett lower their cost basis through using stock options, how other stock traders make money by anticipating dividend changes, and much more.